CONJUNCTURE SITUATION ON THE MARKET FOR OIL AND PRODUCTS IN DECEMBER 2000

Tatyana MELNIK, compiled using the information of DERZHZOVNISHINFORM

GLOBAL MARKET

Instability was the feature of global market for oil and products in December of 2000. Supply exceeding demand on the oil market facilitated by warm winter on the European mainland drove prices down for both oil and products. Thus, against the third decade of November, general prices on the European market for oil products dropped by the average of USD/mt 75-85 or 25-30% at the beginning of the third decade of December 2000 and in the end of the period made USD/mt 150-160 for Russian Ural oil, USD/mt 215-225 for A-92 petrol, and USD/mt 240-250 for diesel oil. The respective figures at the beginning of the period were USD/mt 230-240, USD/mt 285-295, and USD/mt 325-335.

A tumble in prices caused anxiety among countries – members of the OPEC. Their representatives suggested that in case situation is let alone, prices for oil may plummet to USD/barrel 12-15 (USD/mt 90-115). Statements by the ministers of oil from countries – members of the OPEC about projected 1-2 mln. barrels cut in daily oil production brought stability into the market. Prices stopped downward movement, and the trend of growing prices for oil and products was reported. Thus, starting from the third decade of December 2000 till the second decade of January 2001, the European prices for Russian Ural oil and A-92 petrol went up by some 15-20% amounting to USD/mt 175-180 and USD/mt 255-260 respectively in the end of the period. At the same time, prices for diesel fuel in Europe kept on falling and made USD/mt 225-230 in the end of the period.

Dynamics of the European market prices for Russian Ural oil, A-92 petrol, and diesel fuel over October 2000 – early January 2001 is illustrated at Chart 1.

Chart 1. Prices for oil and products on the European market in October 2000-early January 2001, USD/mt

At the regular meeting of oil ministers of countries – members of the OPEC, which was held in Vienna on January 17, 2001, the mentioned countries negotiated to reduce oil production quota by 1.5 mln. barrels per day. We consider that after this event, average prices for Russian oil on the world market in the nearest month will remain in the range of USD/mt 160-180. Prices for various types of petrol may add another USD/mt 20-30 to prices reported in the end of the first decade of January 2001. Prices for diesel fuel will not see considerable changes.

Russia

In December 2000, supply prices on the Russian market for oil and products revealed a stable downturn movement. Thus, over the month, prices for oil decreased by RUR/mt 700-800 or 20-25% and in the first decade of January 2001 settled at RUR/mt 3,300-3,600 as compared to supply price of RUR/mt 4,400-4,700 in early December 2000. Prices for oil products supplied to Russia lost some RUR/mt 230-740 or 3-7% on average. Hence, in early January 2001, prices made RUR/mt 9,400-9,900 for A-95 petrol; RUR/mt 8,300-9,100 for A-92 petrol; RUR/mt 7,300-8,000 for A-76 petrol; and RUR/mt 6,500-7,700 for diesel fuel as compared to supply prices in the beginning of December 2000, which made RUR/mt 10,200-10,600 for A-95 petrol; RUR/mt 8,900-9,600 for A-92 petrol; RUR/mt 7,900-8,500 for A-76 petrol; and RUR/mt 6,900-7,800 for diesel fuel.

Dynamics of average supply prices on the Russian market for oil and products in December 2000 is exhibited at Chart 2.

Chart 2. Average prices for oil and oil products supplied to the Russian market
in October 2000 – early January 2001, RUR/mt

New export duties for oil and products will become effective starting from January 15, 2001. Export customs duties raised from EUR/t 34 to EUR/t 48 for crude oil and oil products made out of bituminous minerals, from EUR/t 32 to 39 for light distillates, medium distillates, and gas oil (diesel fuel), and from EUR/t 27 to 31 for fuel oil.

We consider that prices for light oil products on the interior market of Russia will move downward in January 2001. There are several factors behind this reduction. Foremost, Russia’s oil refineries increased operating load due to falling prices for oil on the global market. Besides, it is more profitable to supply oil to oil refineries of Russia and oil products to the interior market rather than to export the commodities, as prices for petrol on the interior market of Russia presently (the first decade of January 2001) make USD/mt 340-350 for A-95 petrol and USD/mt 300-325 for A-92 petrol, thus, outrunning the European prices by 10-20%. Prices for diesel fuel settled on the Russia’s interior market are some 5-10% up from the European prices and are equal to USD/mt 230-270.

On the grounds of current level of prices for oil products in the RF, calculated price for Russian oil products supplied directly from the Russian Federation in the first half of January 2001 (including all internal duties of the RF and effective export duty) under DAF Russian border – Ukraine, given the purchase is direct, may settle at USD/mt 380-400 for А-95 petrol, USD/mt 340-370 for А-92 petrol, USD/mt 300-330 for А-76 petrol, and USD/mt 280-320 for diesel fuel.

Ukraine

The Ukrainian market for oil products in December 2000 was steady and auspicious for consumers. Over the month, wholesale supply prices on the Ukrainian market for light oil products dropped by an average of UAH/mt 90-130 or 5-6% and in early January 2001 made UAH/mt 2,000-2,300 for A-95 petrol, UAH/mt 1,860-2,200 for A-92 petrol, UAH/mt 1,830-1,930 for A-76 petrol, and UAH/mt 1,820-2,020 for diesel fuel as compared to the prices reported in the beginning of December 2000, which made UAH/mt 2,150-2,550 for A-95 petrol, UAH/mt 2,000-2,250 for A-92 petrol, UAH/mt 1,920-2,050 for A-76 petrol, and UAH/mt 1,950-2,150 for diesel fuel. The situation is primarily influenced by plummeted prices on the European market for oil products. On the other hand, decrease in prices was also fostered by price policy of Tyumen Oil Company of Ukraine, which put up for exchange sale some amount of oil products from Lisichansk Oil Refinery at prices, which were some UAH/mt 100-300 below wholesale supply prices on the Ukrainian market for oil products. Table 1 exhibits results of oil products bids held at the Ukrainian Interbank Currency Exchange (UICE) in November – the third decade of December 2000.

Table 1. Results of oil products bids held at the Ukrainian Interbank Currency Exchange (UICE)
in November – the third decade of December 2000

* Average sale price for 1 ton of fuel (VAT included), UAH

Dynamics of average supply prices on the Ukrainian market for oil products in November 2000 – the beginning of January 2001 is illustrated at Chart 3.

Chart 3. Average supply prices on the Ukrainian market for oil products
in November 2000 – the beginning of January 2001, UAH/MT

Considering conjuncture on the European market for oil products, calculated price for supplies of oil products to Ukraine in the second half of January 2001 under DAF Ukrainian border will come to USD/mt 270-280 for А-95 petrol, USD/mt 265-275 for А-92 petrol, USD/mt 260-270 for А-76 petrol, and USD/mt 235-240 for diesel fuel.

On the basis of import prices, estimated wholesale prices for imported oil products on Ukraine’s interior market in January 2001 may equal to UAH/mt 2,350-2,450 for А-95 petrol; UAH/mt 2,300-2,400 for А-92 petrol; UAH/mt 2,250-2,350 for А-76 petrol; and UAH/mt 1,900-2,000 for diesel fuel.

Over the entire 2000, Ukraine’s oil refineries processed some 8.5 mln. tons of oil, which is 1.9 mln. tons or 18% down from 1999. In 2000, output by oil refineries of Ukraine made over 2 mln. tons of car petroleum and 2.4 mln. tons of diesel fuel, which is by some 390 ths. tons (18%) and 670 ths. tons (21%) respectively below the 1999′ figures.

The leader in output of oil products was OJSC LisichanskNefteOrgSintez (LiNOS), which boosted oil refining 4.5 times in 2000 as compared to 1999 (from 528 ths. tons to as much as 2,422 ths. tons). The company also increased production of petrol five times (from 134 ths. tons to 668 ths. tons) and of diesel fuel – four times (from 178 ths. tons to 708 ths. tons). Kherson Oil Refinery (OR) raised production of oil by 32% (from 867 ths. tons to 1,303 ths. tons), petrol by 25% (from 144 ths. tons to 194 ths. tons), and diesel fuel also by 25% (from 283 ths. tons to 379 ths. tons).

At the same time, the most sizable production downswing in 2000 was reported at Drogobych OR, which cut oil processing 2.6 times (from 828 ths. tons to 307 ths. tons), production of petrol – threefold (from 157 ths. tons to 48 ths. tons), and diesel fuel – 2.5 times (from 225 ths. tons to 85 ths. tons). Kremenchug OR reduced oil refining two times (from 5,248 ths. tons to 2,335 ths. tons), production of petrol – 2.2 times (from 1,208 ths. tons to 529 ths. tons), and output of diesel fuel – also two times down (from 1,502 ths. tons to 697 ths. tons). Downward movement was also traced at Odessa OR, where refining of oil dropped by 18% (from 1,664 ths. tons to 1,350 ths. tons), production of petrol – by 46% (from 272 ths. tons to 145 ths. tons), and diesel fuel – by 44% (from 463 ths. tons to 559 ths. tons). Nadvornyansky OR slashed oil refining by 38% (from 1,246 ths. tons to 769 ths. tons), as well as output of petrol – by 27% (from 213 ths. tons to 154 ths. tons) and diesel fuel – by 34% (from 415 ths. tons to 271 ths. tons).

Output of refined oil and products by Ukraine’s oil refineries in 2000 is shown in Table 2.

Table 2. Output of refined oil and products by Ukraine’s oil refineries in 2000, ths. tons

Data source: UkrNefteKhimPererabotka

Comparison of Ukraine’s balance of light oil products (import minus export, excluding domestic production) in January-December 2000 to the respective period of 1999 reveals that Ukraine’s interior market in 2000 obtained by some 180 ths. tons (11%) more of all types of petrol and by some 200 ths. tons (12%) more of diesel fuel than in 1999. However, reduced Ukrainian output of petrol and diesel fuel by some 390 ths. tons and 670 ths. tons respectively in 2000 as compared to 1999, which was fostered by a 2-mln.-tons (30%) drop in oil supplies, led to the Ukrainian market accumulating the deficit of petrol and diesel fuel over the year 2000. Aggregate figure of the commodity deficit made 260-280 ths. tons for petrol and 380-400 ths. tons for diesel fuel and was equal to a 2-month import turnover (calculations excluded production of petrol out of condensed gas). Supplies of condensed gas to Ukraine in 2000 added some 120-130 ths. tons as compared to 1999. Since the market failed to respond, this suggests that consumption of petrol and diesel fuel in Ukraine saw weighty decrease in 2000.

Balance of oil and light oil products in Ukraine in January-December 1998-2000 is illustrated at Chart 4.

Chart 4. Balance of oil and light oil products in Ukraine in January-December 1998-2000, tons

In 2001, Ukraine’s wholesale market for oil products will eye repartition in favor of Russian oil companies. This is supported by the following factors. Russian companies already exercise control over three out of the six Ukrainian oil refineries, which contribute 72% to total oil refining turnover by Ukrainian plants. Joint venture of TatNeft operates at the Kremenchug OR (CJSC UkrTatNafta, Lisichansk OR (LiNOS) belongs to Tyumen Oil Company, whereas Odessa OR is the property of LUCOil. Another plant, which is Kherson OR, belongs to KazakhOil National Company and is controlled by the Alliance Group. According to some information, in 2001, KazakhOil National Company is likely to establish control over Drogobych OR also, which we believe will have favorable influence on performance of Drogobych OR, as well on the balance of interests in this sector.

Press reports that total supplies of Russian oil to Ukraine in 2000 went 56% down. However, Russian companies began selective supplies of raw materials. Thus, the workload at oil refineries, which are controlled by Russian companies, grew from 66% to 70%. Supplies of Russian raw materials to LiNOS, which is the second large oil refinery in Ukraine (some 30% in total turnover of oil refined by Ukrainian ORs), drove refined oil output more than four times up and also provided exchange sales of oil products at lower prices, thus, ousting Ukrainian oil traders from the wholesale market.

At the same time, providing sufficient load for refineries, Russian oil companies drive Ukrainian traders from oil refineries.

We believe this will lead to the Ukrainian wholesale market for oil products in 2001 being left with only Russian oil companies and the largest Ukrainian oil traders. Majority of Ukrainian wholesale companies in the present year will be driven out of the wholesale market and start operating as retailers.